Fiscal pressure increases friction between Finance and Planning – 03/03/2024 – Market

The pressure on the economic team to obtain positive results and avoid a significant blockage of resources in the 2024 Budget increased friction and criticism exchanged behind the scenes between the Ministries of Finance and Planning.

According to reports collected by Sheetthe department headed by Simone Tebet came under the crosshairs of other members of the government given the view that the spending assessment and review agenda, the minister’s main focus, has not yet taken off.

On the other hand, the independent action of Haddad’s team on issues involving the Budget, under Tebet’s direct management, also generates criticism and complaints.

When contacted, the Ministry of Finance did not respond. Planning declined to comment.

The repeal of the MP (provisional measure) for reimbursing companies’ payroll was the most recent focus of disagreements.

The Treasury was under pressure from the leadership of the National Congress to reverse the measure as soon as possible, but Planning had the view that there could be no vacuum in the flexibility strategy, under penalty of increasing the risk of resource contingencies — a measure unwanted by the wing. government policy.

Without the MP section, the Executive would have to incorporate a billion dollar loss in revenue. Therefore, Tebet’s team defended the revocation only after the revenue and expenditure reassessment report that will be released on March 22, but ended up being sidelined in the discussions. The new MP was published last Wednesday (28).

The episode is the most recent in a list of frictions that, on a daily basis, are hidden under the veneer of public affection between Haddad and Tebet.

Potential presidential candidates in 2026, both seek to demonstrate alignment. In July last year, for example, the Minister of Finance said it was appropriate to give “sincere praise” to Tebet for his openness and willingness in discussions.

The Planning Minister, in turn, has already declared that she does not mind being the “second voice” of the economic duo and usually shows support for the Treasury’s priority measures.

Haddad’s interlocutors, however, recognize in some of the minister’s speeches a subtle demand for greater traction in the spending evaluation and review agenda, led by Planning.

At the beginning of the administration, it was the head of the Treasury who, in an interview with Sheet, led to the debate on the review of mandatory expenses, including the minimum percentages for the application of resources to health and education. Little by little, he adopted the speech that this is an agenda led by Tebet’s team.

The demand seen as subtle in the Treasury, however, bothered Planning, which interpreted it as an attempt to simply pass the baton in a debate that, in the view of Tebet’s assistants, will only move forward with Haddad’s engagement. The agenda is politically sensitive and must face resistance, including from the PT.

The spending review is seen by technicians as a central point to guarantee the sustainability of the fiscal framework in the medium term, since the growth in mandatory expenses tends to flatten investments, considered a priority by President Luiz Inácio Lula da Silva (PT). It is also a demand from the market after the Treasury focused the fiscal adjustment on increasing revenues.

If in the Treasury the criticism is that the Planning budget area could already be delivering more in improving expenditure management after a year of government, in Tebet’s team the discomfort is growing with the stance of Haddad and his assistants, when confronted, transfer the responsibility for talking about thorny issues to the department headed by the minister.

In addition to the change in the floors, the Finance team also passed the ball when the issue was the creation of a limit on the deduction of medical expenses from the IRPF (Individual Income Tax). Due to these episodes, the Ministry of Planning gained the ironic nickname of call center.

The noise between the two departments has been growing since the beginning of the Lula government. At the beginning, Tebet’s team was sidelined from discussions about the new fiscal framework — there are reports that the first sharing of information from the Treasury involved just a presentation, similar to the one made to the press at the end of March 2023.

Afterwards, Planning diverged from Treasury initiatives to pay part of the court sentences as financial expenses (request made to the Federal Supreme Court) and limit the maximum size of the contingency in the 2024 Budget (amendment to the Budget Guidelines Law approved by the Legislature).

In the case of precatório, Tebet met with the president of the STF, minister Luís Roberto Barroso, without the presence of Haddad, to propose the alternative that ended up prevailing in the trial — to settle the liability outside the tax rules and maintain part of the flow until 2026 outside the expenditure limit of the new framework.

Last year, the minister also defended the relaxation of the fiscal target to a deficit of 0.5% of GDP (Gross Domestic Product), which bothered Haddad, the main guarantor of the zero target for this year.

Below the ministers, demands and friction become more intense.

Finance technicians more openly express their frustration with the low traction and delay in implementing the evaluation and review agenda. In their view, the agenda should have already gained greater scale, especially given the existence of a set of studies and diagnoses carried out in previous governments.

Tebet’s allies recognize the pace is less than desired and see Planning as acting excessively operational. On the other hand, representatives of the department often say they need to enter the field to “correct course” after some measure from the Treasury has a bad impact, as in the case of court orders.

There are also reports of veiled disputes between technicians from both ministries, including to dictate the protagonism of one or the other in joint interviews.

Internal conflicts also exist in both departments, given the discomfort with the centralization of decisions in a few actors and divergences in the management of certain topics.

The risk of demobilization was also a factor that weighed on Planning. After Flávio Dino was nominated for a position at the STF, the news that Tebet was being considered to succeed him at the Ministry of Justice had a demotivating effect on the team, according to confidential reports.

The minister continued in her role and is now seeking to give new impetus to the agenda. The ministry wants to publish, in the 2025 LDO, a list of policies that will be subject to review next year, in an attempt to give institutional strength to the tool.

To this end, he also hopes to have the support of the other members of the Budget Execution Board — in addition to Haddad and Tebet, ministers Rui Costa (Civil House) and Esther Dweck (Management) make up the panel.

Without this support, allies of the minister believe that it will be even more difficult to put the issue on the agenda of a government that in their view, despite all the demands, does not have spending review in its DNA.